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Hearing Journal:
doi: 10.1097/01.HJ.0000452248.30322.a5
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Going Public: Two Paths for Siemens Audiology, Experts Say

Lindsey, Heather

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As Siemens prepares to take its audiology business public, what does this move mean for the rest of the hearing healthcare field? Experts who spoke with The Hearing Journal outlined two scenarios.

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Figure. siemens.comp...
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One option is that Siemens generates capital to rework the public audiology business, creating more competition in the hearing aid marketplace, said Amyn M. Amlani, PhD, associate professor in the Department of Speech and Hearing Sciences at the University of North Texas.

Another possibility that does not generate cash proceeds is a spin-off of the audiology segment, wrote Oliver Metzger, equity analyst at Commerzbank AG in Frankfurt, Germany, in an e-mail to HJ.

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CORPORATE REALIGNMENT

As part of its corporate realignment, Siemens AG will operate under nine divisions, in addition to an independently operated healthcare unit.

“[T]he audiology business has a special position within the company,” Siemens said in a May 6 press release. “Both its technology and its consumer-oriented market access limit synergy potentials with other Siemens businesses.

“In addition, anticipated technological developments at Siemens Audiology differ greatly from those of the company and its healthcare activities,” particularly when it comes to “growth fields” like implants and links to consumer electronics.

“We believe that a divestment of Siemens’ audiology business is an indication of the strong appetite of equity markets for hearing aid companies and the low level of synergies with the rest of Siemens’ portfolio,” Mr. Metzger said.

The industry can be characterized by a mix of stable and defensive revenue growth that is not closely tied to economic activity, responding to demographic changes and higher life expectancy, Mr. Metzger explained.

Additionally, margins in the hearing aid industry are high, he said.

“Siemens’ audiology business has improved, in our view, on the back of investments over recent years, and we regard the current portfolio as highly competitive.” Overall, investors tend to pay a premium for such companies.

Siemens Audiology has about 4,000 employees around the world, according to the company's statement.

Siemens brought the first industrially produced hearing aid, the Esha-Phonophor, to market in 1913. In the late 1950s, the company presented the first behind-the-ear device, followed by the first in-the-ear device and the first digital hearing system in 1966 and 1997, respectively, according to Siemens.

In 2004, Siemens introduced hearing aids utilizing radio technology to synchronize operation between the left and right ears. The company has also been recognized for developing a binaural hearing system that enables hearing aids in both ears to communicate.

While manufacturers always keep their competitors in mind, Mr. Metzger anticipates that Siemens going public will not have a significant impact on the business decisions of other hearing aid companies, as it basically means only a change in ownership.

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FORM OF DIVESTMENT INFLUENTIAL

During Siemens’ 2014 second-quarter analyst and press conference, company representatives mentioned raising capital to build the business as one of the reasons for independently listing the company.

However, the option that Siemens officially uses to go public still remains to be seen.

Going public implies that Siemens’ audiology business might be listed on the stock exchange as a separate company in the form of a spin-off, which means that every Siemens shareholder will receive some shares, Mr. Metzger said. This scenario doesn't generate cash proceeds.

Another possibility is that the company divests with an initial public offering, meaning the general public can buy stock through a securities exchange, which raises capital, he said.

Increased capital could allow the company to retool its hearing aid sector, making the marketplace more competitive, Dr. Amlani said.

More competition would yield an increased supply of devices to the market, which means more options for dispensers and their patients, he added.

“The increased competition also provides dispensers the opportunity to reduce their wholesale cost per unit.”

© 2014 by Lippincott Williams & Wilkins, Inc.

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